BofA Securities has stated that the founder of One 97 Communications (Paytm) purchasing a 10.3 percent stake in Paytm from Ant Financials has alleviated a concern surrounding the stock. Previously, there was a potential risk that China-based Antfin might contemplate reducing its stake, leading to an influx of additional supply. This recent development eliminates any shares of Sharma being pledged and removes the presence of an Antfin nominee on Paytm’s Board.
“We view this announcement as a positive step. Moreover, Sharma’s acquisition of the stake at Friday’s closing price reflects his belief in the narrative and demonstrates his ‘skin in the game’ commitment. This occurrence also mitigates the risk of another strategic investor emerging with a substantial stake similar to Sharma’s. We opine that the departure of a Chinese shareholder (Antfin) as the largest shareholder could potentially bolster the company’s fundamentals,” remarked BofA Securities.
The foreign brokerage highlighted that in November, the Reserve Bank of India (RBI) rejected Paytm Payments Services Limited’s (PPSL) application to function as a payment aggregator. The RBI granted a 120-day window for PPSL, a wholly-owned subsidiary of Paytm, to reapply for the license.
“To allow compliance with foreign direct investment (FDI) guidelines, the company was instructed not to onboard new online merchants during this period. Going forward, we anticipate a reduction in such concerns. We maintain a Buy rating on Paytm due to its favorable risk-reward ratio,” noted the brokerage, which has set a target of Rs 1,020.
As a result of this acquisition, Sharma’s direct ownership in Paytm will rise to 19.42 percent, while Antfin’s ownership will decrease to 13.5 percent. The transaction will be executed through Sharma’s wholly-owned overseas entity, Resilient Asset Management BV.
